Good And Bad Sides Of Franchise Business

 

A franchise business is a type of of business model that consists of franchisor and franchisees.

Franchisor is the owner of a business that opens up for franchising – giving the opportunity for others to buy the rights and duplicate its business model.

Franchisees are those have purchased the license of a franchise business – having the rights to operate under the brand name to sell the company products.

We can see that franchise businesses are booming everywhere like mushrooms nowadays.

The most common one is the food & beverage (F&B) where there are many outlets operated by the franchisees of a particular brand.

With this model, the owner able to expand its brand to many places fast without having to use its own financial resources. Not only it reduces the owner’s risk but at the same gives the owner a handsome profits from selling the rights to those interested to start a business under the brand.

Those franchisees who bought the a franchise business license are entitled not to just the brand name but also given the exclusive privileges…

…Such as the know-how, systems and intellectual property to operate the business.

It’s considered as a business-in-box or turnkey-business whereby it can be started without re-invent the wheel.

Therefore, it’s not surprising why buying a franchise business looks appealing for entrepreneurs, especially those who does not have business or marketing experience.

There are many key advantages that a franchisee would usually get with franchise business….

 

Good Sides Of Franchise Business

 

i) Branding

Brand name is one of the most valuable assets for a business. With a strong brand name, a business is able to connect with customers at a much deeper level and much more effectively.

Customers would be able to recognize a popular brand immediately and the kind of products it is offering.

However, building up a successful brand is not a matter of days but can take significant amount of time and effort.

Being a franchisee would have the advantage of skipping the branding building process because he/she can now leverage on the successful brand name of the undertaken franchise business.

Therefore, the franchisee would get to enjoy the start a business that comes with a recognizable brand in the market.

 

ii) Training

One cool thing about franchise business is that it comes with the training that would be provided by the franchisor to the franchisee.

The training is given so that the franchisee and his/her employees are equipped with the necessary knowledge to run the business effectively and smoothly.

This means aspiring entrepreneurs would have a chance to kick-start their entrepreneurship dream even without any business experience.

One of the challenges faced by many newbie entrepreneurs is that they not sure how to start from ground zero.

Therefore, franchise business has literally removed the roadblock for them to start their own business.

 

iii) Business Tools

As a franchisee of a franchise business, he/she would be given the set of tools to run the business.

The tools given are the exact one being used in the franchisor’s own business.

This means the franchisee doesn’t have to figure out what kind of tools to use for different purposes in the business.

Finding the right tools to use in a business not just time consuming but can be very overwhelming too.

Franchise business has eliminated all of these headaches upfront.

Therefore, a franchisee can start his/her business immediately with the proven tools to work in the business.

 

iv) Ready Customers

One of the major challenges faced by businesses is finding customers. Any business needs customers for long-term survival.

Without enough customers, the business would be having financial crisis sooner or later because it couldn’t making enough profits while still having to pay for costly business operating expenses.

Finding customers could be an uphill task for newbie in business journey because lack of marketing knowledge.

But with franchise business, franchisee is able to tap into the existing ready customers of the brand.

When a new franchise outlet is opened in a new particular place, customers would be flocking to it by themselves because they already know the brand.

 

v) Duplication

Building a business into a successful one requires a lot of sweat, blood and tears. Not just that, it often also involves many trial and error.

Not all entrepreneurs are able to overcome those brutal challenges.

Thus, a lot of new businesses particularly those started from scratch would ended up winding up the venture in a very short time after starting.

However, with franchise business, franchisees are given the privilege to duplicate the success model of its franchisor.

The franchisor would hand down its time-tested “secret recipe” to run a successful business.

It means the franchisees can now skip all the trial and error steps and have a bigger chance to succeed in business.

 

vi) Support

Having the support by somebody who is more experienced in business is important to have a clear direction on how to build a successful business.

It also helps reducing the chance of making painful mistakes which could jeopardize the whole journey.

Support is one of the key advantages offered in franchise business.

Franchisor would give franchisees valuable advise and guidance from the point of setting up the business up to running the business.

Thus, franchisees would have lesser chance of hitting the wall in their entrepreneurship journey.

 

Although there are many advantages with franchise business, there are some bad sides of it as well…

 

Bad Sides Of Franchise Business

 

i) High Start-up Cost

To get a franchise license, the amount usually costs at least 6-figures and can goes up to 7-figures.

That amount does not include yet the rental fees, the staff salaries and other operational costs.

It is a high-budget entry business which not many aspiring entrepreneurs are having financial means to fund it.

Therefore, franchise business may not suitable for everyone.

 

ii) Staff Management

Having reliable staffs in the franchise business is extremely important to run day-to-day operation.

Therefore, having proper staff training and management are critical so that they are able to perform their duties smoothly and independently without much supervision.

Staff management also important to ensure the staffs would stay long with the business.

Else, there would be a high staff turnover rate and this would costs a lot of effort to train the new ones.

Getting reliable staffs and having proper staff management can be very challenging in franchise business.

 

iii) Cashflow Management

In franchise business, much of the capital already invested upfront, therefore it is important to have a proper cashflow management.

This is to ensure an always healthy positive cashflow generated from the business to keep it sustainable.

Without proper cashflow management, it’s easy to go into negative cash balance and this would impact the franchise business long-term sustainability.

Therefore, franchisees must be ready to equip themselves with the necessary knowledge and skills to manage their cashflow well.